In my work I tend to analyze around 4,000 companies a year, as I am always on a constant hunt for my next Deep Value play. Two months ago I was doing some research for an institutional client of mine, looking for potential shorts from a list he handed me, and that is where Gencorp (GY, Financial) sprang up. In Deep Value investing sometimes you have to look deep into the books of a company to find where the jewels are hidden. Gencorp to my surprise has a lot of hidden jewels that you can’t identify by just running screens. The following is an analysis of Gencorp using my “Mycroft Research System,” and for those of you new to my writings, here is an introduction to my system:
http://www.gurufocus.com/news/128672/analysis-of-the-new-york-times-nyt#129129
GenCorp is an American technology-based manufacturer based in Sacramento, Calif. The company manufactures aerospace and defense products and systems in the United States. It operates in two segments: aerospace and defense, and real estate. The aerospace and defense segment develops and manufactures defense systems, which include liquid, solid and air-breathing propulsion systems and components used in strategic strike missiles, tactical and precision strike missiles, missile defense systems, maneuvering propulsion systems, precision war fighting systems, and specialty metal products; and supplies composite and metallic aerospace structural components, fire suppression systems, and armament systems. It also offers space systems products comprising liquid, solid, and electric propulsion systems used in expendable and reusable launch vehicles, transatmospheric vehicles and spacecraft, separation and maneuvering systems, upper stage engines, satellites, large solid boosters, and integrated propulsion subsystems.
Gencorp owns approximately 12,600 acres of land in the Sacramento metropolitan area. The company was founded in 1915 and is headquartered in Rancho Cordova. Established in 1915, GenCorp was formerly the General Tire and Rubber Company. The name change was implemented in 1984 when GenCorp was formed as a parent holding company for General Tire's various businesses. Its main subsidiaries were General Tire; broadcaster RKO General; Diversitech General, a manufacturer of tennis balls and polymer products including automotive soundproofing and home wallpapers; and defense contractor Aerojet
What really caught my eye when I was analyzing the company, was that they owned 12,600 acres of land in Sacramento, Calif. As soon as I saw that I had to go back and check out what the market capitalization of GY was, because at first look I remembered noticing that it was selling for about $5.16 a share and had a total market capitalization of $302 million. With 12,600 acres of land it seemed strange that the entire company was only selling for $302 million, so I dug deeper and found that they had total debt of $385 million or $6.61 a share in debt, so that explained a lot. But when I looked further at the balance sheet, I noticed that they also had $216.60 million in cash and much of the debt was in $68.6 million 2 1â„4% debentures (’24), each convertible into 50 shares at $20.00 and $200 million 4 1â„16% debentures (’39), each convertible into 111.0926 shares at $9.00.
So if the stock eventually hits $9 a share, those debt holders become my fellow shareholders. But still the Property Plant and Equipment line on the balance sheet had a number of $124 million, and that would mean that the 12,600 acres of land that they owned are on the books valued at about $10,000 and acre.
I doubt very much that real estate in Sacramento sells for $10,000 an acre, so I went and looked at the following website http://www.homes.com/For-Sale/CA/SACRAMENTO/LOTS|LAND/ at raw land prices for one acre of Sacramento real estate. I discovered that the cheapest price was $79,000 for 0.42 of an acre, so worst case scenario, I was looking at a minimum of $100,000 an acre. But let’s look at this from a liquidation point of view and say that each acre is only worth $50,000 in total liquidation, and then go and multiply 12,600 acres by that number to get = $630 million. If we take that $630 million and subtract the total debt of $385 million, we get $245 million, of which we then add the $216 million in cash, and we get $461 million. $461 divided by 58.7 million shares equals $7.85 a share.
Having figured that much out, I then decided to run the company through my Mycroft Research System and found some even more appealing things going on in the company.
Here is a table containing the key numbers I use:
Value Line estimates that the owner earnings for Gencorp are going to come in at $0.75 a share for 2011, so at the $5.16 a share price I paid for the stock it was trading at price-to-owner-earnings ratio of 6.88, and it was selling for about half its Cumulative Owner Earnings (COE) number of $10.07. Not only was I getting an aerospace firm that was trading at 6.88 times its free cash flow, but I was also getting land and cash worth $7.85 a share on top of that.
For those of you who are GuruFocus Premium Service subscribers, you can punch in the ticker GY in your “Guru Search Box” and find that Mario Gabelli has been very active when it comes to Gencorp:
http://www.gurufocus.com/stock/GY
Period Bought/Sold (Sh.) Qtr. End Shares Avrg. Price Gain (%)
2008Q4 +4,492,407 4,492,407 $3.71 74.7%
2009Q1 +349,420 4,841,827 $2.79 132.3%
2009Q2 +820,690 5,662,517 $2.27 185.5%
2009Q3 +611,396 6,273,913 $3.64 78.0%
2009Q4 +342,521 6,616,434 $7.50 -13.6%
2010Q1 -6,616,434 0 $5.20 24.6%
2010Q2 +7,030,684 7,030,684 $5.42 19.6%
2010Q3 +822,620 7,853,304 $4.95 30.9%
2010Q4 +13,889,490 21,742,794 $5.04 28.6%
Average Average Cost for Current Shares: $5.16/share 26%
So by using Guru Focus I was able to identify a guru who obviously came to the same conclusions that I did in regard to Gencorp, which shows you what a powerful tool GuruFocus can be in your work.
Here are the current results for Gencorp using my system, and as you can see it is still a “Steal It” stock:
But before closing I would like to show you how using my Statistical Indicator Analysis (SIA)(you can download the template by going here): http://www.mycroftresearch.com/60_Year_Backtest_of_DJIA.html that you could have saved yourself from a big drop in the stock in 2005-2007 and not followed Guru’s Michael Price and John Keeley who clearly overpaid then as they ignored investor sentiment, which was extremely bullish on the stock, and joined the herd to only get hammered. http://www.gurufocus.com/StockBuy.php?symbol=GY
Here is my SIA % chart for Gencorp that will show you what I mean:
John Keeley lost a lot the first time around but then redeemed himself by buying the stock back in 2009 at an amazing price.
As you can see Gencorp is just breaking out from its “Steal It” level, and from the analysis above (verified by my system) that we could someday see large gains from this holding. For those interested in investigating more into the real estate end of Gencorp, you can do so by studying their Easton development project by going here: http://www.easton-ca.com/ where Gencorp is developing 6,000 acres into a variety of commercial and residential projects.
http://www.gurufocus.com/news/128672/analysis-of-the-new-york-times-nyt#129129
GenCorp is an American technology-based manufacturer based in Sacramento, Calif. The company manufactures aerospace and defense products and systems in the United States. It operates in two segments: aerospace and defense, and real estate. The aerospace and defense segment develops and manufactures defense systems, which include liquid, solid and air-breathing propulsion systems and components used in strategic strike missiles, tactical and precision strike missiles, missile defense systems, maneuvering propulsion systems, precision war fighting systems, and specialty metal products; and supplies composite and metallic aerospace structural components, fire suppression systems, and armament systems. It also offers space systems products comprising liquid, solid, and electric propulsion systems used in expendable and reusable launch vehicles, transatmospheric vehicles and spacecraft, separation and maneuvering systems, upper stage engines, satellites, large solid boosters, and integrated propulsion subsystems.
Gencorp owns approximately 12,600 acres of land in the Sacramento metropolitan area. The company was founded in 1915 and is headquartered in Rancho Cordova. Established in 1915, GenCorp was formerly the General Tire and Rubber Company. The name change was implemented in 1984 when GenCorp was formed as a parent holding company for General Tire's various businesses. Its main subsidiaries were General Tire; broadcaster RKO General; Diversitech General, a manufacturer of tennis balls and polymer products including automotive soundproofing and home wallpapers; and defense contractor Aerojet
What really caught my eye when I was analyzing the company, was that they owned 12,600 acres of land in Sacramento, Calif. As soon as I saw that I had to go back and check out what the market capitalization of GY was, because at first look I remembered noticing that it was selling for about $5.16 a share and had a total market capitalization of $302 million. With 12,600 acres of land it seemed strange that the entire company was only selling for $302 million, so I dug deeper and found that they had total debt of $385 million or $6.61 a share in debt, so that explained a lot. But when I looked further at the balance sheet, I noticed that they also had $216.60 million in cash and much of the debt was in $68.6 million 2 1â„4% debentures (’24), each convertible into 50 shares at $20.00 and $200 million 4 1â„16% debentures (’39), each convertible into 111.0926 shares at $9.00.
So if the stock eventually hits $9 a share, those debt holders become my fellow shareholders. But still the Property Plant and Equipment line on the balance sheet had a number of $124 million, and that would mean that the 12,600 acres of land that they owned are on the books valued at about $10,000 and acre.
I doubt very much that real estate in Sacramento sells for $10,000 an acre, so I went and looked at the following website http://www.homes.com/For-Sale/CA/SACRAMENTO/LOTS|LAND/ at raw land prices for one acre of Sacramento real estate. I discovered that the cheapest price was $79,000 for 0.42 of an acre, so worst case scenario, I was looking at a minimum of $100,000 an acre. But let’s look at this from a liquidation point of view and say that each acre is only worth $50,000 in total liquidation, and then go and multiply 12,600 acres by that number to get = $630 million. If we take that $630 million and subtract the total debt of $385 million, we get $245 million, of which we then add the $216 million in cash, and we get $461 million. $461 divided by 58.7 million shares equals $7.85 a share.
Having figured that much out, I then decided to run the company through my Mycroft Research System and found some even more appealing things going on in the company.
Here is a table containing the key numbers I use:
Value Line estimates that the owner earnings for Gencorp are going to come in at $0.75 a share for 2011, so at the $5.16 a share price I paid for the stock it was trading at price-to-owner-earnings ratio of 6.88, and it was selling for about half its Cumulative Owner Earnings (COE) number of $10.07. Not only was I getting an aerospace firm that was trading at 6.88 times its free cash flow, but I was also getting land and cash worth $7.85 a share on top of that.
For those of you who are GuruFocus Premium Service subscribers, you can punch in the ticker GY in your “Guru Search Box” and find that Mario Gabelli has been very active when it comes to Gencorp:
http://www.gurufocus.com/stock/GY
Period Bought/Sold (Sh.) Qtr. End Shares Avrg. Price Gain (%)
2008Q4 +4,492,407 4,492,407 $3.71 74.7%
2009Q1 +349,420 4,841,827 $2.79 132.3%
2009Q2 +820,690 5,662,517 $2.27 185.5%
2009Q3 +611,396 6,273,913 $3.64 78.0%
2009Q4 +342,521 6,616,434 $7.50 -13.6%
2010Q1 -6,616,434 0 $5.20 24.6%
2010Q2 +7,030,684 7,030,684 $5.42 19.6%
2010Q3 +822,620 7,853,304 $4.95 30.9%
2010Q4 +13,889,490 21,742,794 $5.04 28.6%
Average Average Cost for Current Shares: $5.16/share 26%
So by using Guru Focus I was able to identify a guru who obviously came to the same conclusions that I did in regard to Gencorp, which shows you what a powerful tool GuruFocus can be in your work.
Here are the current results for Gencorp using my system, and as you can see it is still a “Steal It” stock:
But before closing I would like to show you how using my Statistical Indicator Analysis (SIA)(you can download the template by going here): http://www.mycroftresearch.com/60_Year_Backtest_of_DJIA.html that you could have saved yourself from a big drop in the stock in 2005-2007 and not followed Guru’s Michael Price and John Keeley who clearly overpaid then as they ignored investor sentiment, which was extremely bullish on the stock, and joined the herd to only get hammered. http://www.gurufocus.com/StockBuy.php?symbol=GY
Here is my SIA % chart for Gencorp that will show you what I mean:
John Keeley lost a lot the first time around but then redeemed himself by buying the stock back in 2009 at an amazing price.
As you can see Gencorp is just breaking out from its “Steal It” level, and from the analysis above (verified by my system) that we could someday see large gains from this holding. For those interested in investigating more into the real estate end of Gencorp, you can do so by studying their Easton development project by going here: http://www.easton-ca.com/ where Gencorp is developing 6,000 acres into a variety of commercial and residential projects.
